Analysts Stay Bullish On Infosys But Cut Earnings Estimate Post Q4 Results

Most analysts maintained their bullish investment recommendation for Infosys Ltd. but cut earnings estimate for the ongoing and the next financial year after disappointing fourth-quarter results.

The IT company saw its revenue rise 1.5% over the preceding quarter to Rs 26,311 crore in the three months ended March, according to an exchange filing. Its revenue in U.S. dollar terms rose 2.8%. Net profit and EBIT, however, fell more than 2% each sequentially, while margins contracted 90 basis points to 24.5%.

The company expects its FY22 revenue to grow between 12% and 14% in constant currency terms; while operating margins were guided to be in the range of 22-24%, lower than the 24.5% upper end of FY21.

While some analysts termed Infosys’ revenue guidance for the ongoing fiscal as “conservative” given large deal wins, and a spike in attrition a negative; others expect upward revisions to its FY22 guidance and ramping up of large deal wins.

The technology services provider also announced an open market share buyback through which it will purchase shares at a price of up to Rs 1,750 apiece. Motilal Oswal and CLSA expect this buyback to led downside support to stock price.

Infosys’ American Depository Receipts fell 6% in the early hours of trade on the back of the earnings disappointment.

Shares of Infosys fell as much as 5.5% to Rs 1,320 and are down for the third straight day. The stock is trading at the lowest level in over a month. Of the 47 analysts tracking Infosys, 43 have a ‘buy’ rating, three suggest a ‘hold’ and one recommends a ‘sell’, according to Bloomberg data. Based on the 12-month Bloomberg consensus data, the stock has a return potential of 13.3%.

Here’s what analysts have to say about Infosys’ fourth-quarter results...

Credit Suisse

• Maintains ‘outperform’ rating and cuts price target to Rs 1,725 apiece from Rs 1,810.
• Q4 was an unimpressive quarter mainly due to muted BFSI growth.
• FY22 guidance appears to be conservative given strong deal momentum.
• Remains positive given expectations of industry-leading growth potential in the medium term.
• Cuts FY22/23E earnings estimates by 5-6%, factoring in the FY22 guidance.

Jefferies

• Maintains ‘buy’ rating but cuts price target to Rs 1,600 apiece from Rs 1,620.
• Deal wins fell sharply on a high base as Q4 had no mega deals.
• Revenue growth guidance of FY22 is achievable.
• Margins may contract in FY22-23 due to wage pressures.
• Lowers FY23 margin estimates in FY23 by 40 basis points to 23.7%.
• Expects 13% revenue growth CAGR over FY21-23.

CLSA

• Maintains ‘buy’ rating and price target of Rs 1,660 apiece.
• 2% constant currency growth in Q4 masks strong business momentum.
• Margin defence was effective in Q4 and EBIT margin guidance is as expected.
• Expects 12% U.S. dollar revenue CAGR over FY21-24.
• Proposed share buyback through open market purchase should lend downside support to stock price.
• Expects buyback to be EPS-neutral but RoE positive.
• Remains preferred play on dual themes of growing digital spend and market share gains.

Nomura

• Maintains buy rating but cuts price target to Rs 1,615 apiece from Rs 1,620.
• Continues to remain preferred pick due to potential for industry-leading growth and strength in digital.
• Ebit margins can be a potential dampener; expect them to fall 110 basis points in FY22F.
• Estimate ~13.5%/15.5% revenue/EPS CAGR over FY21-23F.
• Deal TCV trends and attrition will be key monitorables.
• Material impact on margins due to rising attrition, large deals and cost reversals are key risks.

Motilal Oswal

• Maintains ‘buy’ rating and price target of Rs 1,600 apiece.
• Long-term traction remains intact.
• Expects another year of ongoing guidance raise as the current one does not fully factor in strong technology demand and execution of its record high FY21 deal wins.
• Sees the sharper-than-expected rebound in attrition as concerning and remains a key monitorable.
• Buyback should help create a floor for the stock price.
• Cuts FY22E/FY23E EPS estimates by 4% each.
• Continues to see Infosys as a key beneficiary of a recovery in IT spends in FY22.

Emkay

• Maintains ‘buy’ rating and price target of Rs 1,550 apiece.
• Q4 lacked positive surprises after strong growth in the last two quarters.
• Spike in attrition, softness in communications business a negative.
• Strong revenue momentum with stable margins, continued market share gain, strong deal intake, robust cash conversion and comparable cash payouts will narrow valuation gap with TCS.
• Lowers FY22/23E EPS estimates by less than 1%, factoring in the FY21 performance, buyback.

Antique Stock Broking

• Maintains ‘buy’ rating but cuts price target to Rs 2,000 apiece from Rs 2,020.
• Results were below estimates due to higher offshoring and lower contribution from third-party deals.
• Revenue outlook for FY22 looks conservative.
• Sees good demand across industries and expects deal momentum to remain strong in FY22.
• Remains constructive for medium to long term with growth expected to be similar to TCS.

PhillipCapital

• Maintains buy rating but cuts price target to Rs 1,540 apiece from Rs 1,560.
• I.T. will remain in flavour in the near-term, despite valuations bordering on the expensive.
• Sector remains attractive from a long-term perspective on strong fundamentals and accelerated digital adoption.
• Set to report mid-teen growth in FY22 after a strong FY21.
• Cut FY22/23 estimates by less than 3%.
• Stock may remain weak in the near-term but we remain positive for medium to long-term.